Written Contracts are Important in an HOA?

Question: I am a Board member of our Association, and am responsible for landscaping, grounds maintenance and security. Over the years, our Association has had a number of contractors who render service to us — whether this be in the form of snow removal, landscaping services, or trash removal. Some Board members are not happy with those services. Other Board members (myself included) do not know whether the price we pay is competitive.Basically, things have just continued, with little or no oversight by the Board. Do you have any suggestions for our Board?

Answer: Yes, I have a number of suggestions and recommendations.

The first thing you should remember is that the Board is — or must be — in charge of the operations of your Association. You rely heavily on your property manager — as you should — but the ultimate decisions must be made by the Board. As Harry Truman often said: “the buck stops here”.

Furthermore, the fact that you have been using the same contractors each and every year does not mean you should continue the status quo.

Ask your property manager to prepare a list of all existing contracts. It can be in a form, which would look something like this:

ContractorBrief Summary of ServicesCostTermination Date

This list should be updated at least quarterly. Furthermore, the manager (or your association attorney) should review each contract to determine how these contracts can be terminated, and whether these contracts will automatically continue unless advance notice is given to the contractor.

Then, at least two months before a particular contract is about to expire, the manager should solicit at least three bids from potential contractors. The manager should prepare a brief summary of each bid, and make a recommendation to the Board. But the Board — and only the Board — should make the ultimate decision. And make sure you currently have the right to cancel the existing contract should you opt for a new one.

This highlights perhaps the most important point of this article: you must have a written contract for every contractor that your Association uses.

Why? Because you want to know — in advance — exactly what services the contractor will provide, what the cost will be, and how you resolve disputes should they arise.

This is not a hypothetical situation. Our office has handled hundreds of contractor disputes, ranging from dissatisfaction with services, arguments over the scope (or quality) of the work to be performed, to questions of how much the contractor should be paid.

Why take a chance and rely on the “he said, she said” informal approach. Good management practices require a properly drafted contract. Your association lawyer should prepare a boilerplate addendum, covering those generic items which can be applicable to most contracts. Included in this addendum should be such matters as:

l. Dispute resolution procedures. Should you agree to arbitrate any disputes or do you want to go to Court? My personal belief is that although arbitration is clearly faster and usually less expensive than litigation, the arbitration process is not in the best interest of most associations. Often, the arbitrator “splits the baby in half”, without regard to the merits of the case. Usually, the arbitrator does not allow either side to obtain discovery prior to the hearing. In any event, if you decide that arbitration is the best route for your Association, the following clauses should be included in the contract:

a. The arbitrator will issue a written opinion;b. The arbitrator shall award attorneys fees and costs to the prevailing party.

2. Payment schedule. You want to spell out in writing exactly when the contractor will be paid, and under what circumstances you have the right to withhold payment.

3. Provisions for final payment. Make sure that a professional has inspected the work when the job is finished, and that the Association obtains a release of mechanic and subcontractor liens before the contractor receives the final payment.

4. If you are doing a big job, you should consider hiring a project engineer or architect. This person will be a buffer between the Association and the contractor, and will have to approve the work before payments are made.

5. Make sure you limit the hours of the contractor. You do not want to have concrete blasted at 6 a.m. on a Sunday morning, but you do want to make sure that a heavy snowfall is plowed early in the morning. Also, all contracts should require the contractor maintain appropriate licenses and insurance.

This article cannot cover all of the important legal aspects, which must be included in any contract. You should review your procedures with your attorney and your property manager.

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